Dollar strengthens with bond yields, boosts Japanese exporters

Hong Kong (AFP) – The dollar extended gains against its main peers and most other currencies Tuesday as rising US bond yields fan speculation of a sharp rise in interest rates, while most of Asia’s major markets edged up after recent losses.

While the corporate earnings season is maintaining traders’ attention, the release on Friday of US economic growth data is a key marker with a strong reading likely to reinforce opinions that borrowing costs will go up.

An improving economy and expectations that inflation will continue to rise on the back of a oil price rally and Donald Trump’s tax cuts have lifted the yield of benchmark 10-year Treasuries close to three percent and near its highest level since 2014.

Higher yields are a signal interest rates could rise and could weigh on markets as traders shift from equities to safer bond investments.

“It should be reaffirming the fact that we see a global economy that’s looking relatively healthy.”

The dollar rallied on the back of the higher yields, sitting at two-month highs against the yen and seven-week highs against the euro. It was also up against most other high-yielding units, including the Australian dollar, South Korean won, Mexican peso and South African rand.

“Without question (the) US GDP data will be crucial for an extension of the current dollar move as US economic strength in the face of synchronised economic slowdowns in both China and Europe are playing into the resurgent US dollar hand,” said Stephen Innes, head of Asia-Pacific trade at OANDA.

The weaker yen boosted Japanese exporters, which helped the Nikkei to end the morning 0.7 percent higher.